15 August 2002 GST/HST Interpretation 35709 - Meaning of "Health Care Facility", "Institutional Health Care Service" and "Diagnostic Service" for Purposes of the Excise Tax Act

Dear Sir:

This is in reply to your letter of XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made by operators of private medical clinics of medical reports that were prepared following independent medical assessments of individuals, and rehabilitative care.

Interpretation Requested

Your request concerns an interpretation of the definitions "health care facility" and "institutional health care service" provided in section 1 of Part II of Schedule V to the Excise Tax Act (the "ETA"). It also involves an interpretation of the exemption for diagnostic services provided in section 10 of that Part. You would like our comments on the application of these ETA provisions to private clinics owned and operated by incorporated entities. You advised that the incorporated entities supply medical reports to respond to specific questions asked by persons such as insurance companies, lawyers, and employers. In addition, rehabilitative care generally comprised of chiropractic services, massage therapy, orthotic care and other therapy, may be provided at these private clinics.

Based on the information you provided and the questions you asked, we are providing general comments on the following issues:

1. The definition of "health care facility" for purposes of the GST/HST.

2. The definition of "institutional health care service" for purposes of the GST/HST.

3. "Diagnostic service" for purposes of section 10 of Part VI of Schedule V to the ETA.

4. Diagnostic and treatment services as inputs to the supply of a medical report.

5. Other issues.

Interpretations Given

1. Definition of "health care facility" - paragraph (a).

A "health care facility", as described in paragraph (a) of the definition in section 1 of Part II of Schedule V to the ETA, is a facility that provides acute, chronic, or rehabilitative care, which is also medical or hospital care. Whether or not a particular facility is operated for the purpose of providing acute, rehabilitative or chronic care is a question of fact and must be determined on a case-by-case basis. Generally, a health care facility is a place where members of the public receive the care described in the definition. Medical, surgical, nursing and other health professionals would be available at all times in the facility. Within the context of the ETA, the operator of a health care facility would provide inpatient accommodation, diagnostic services utilizing high technology, i.e., laboratory and radiological services, and on the facility's premises there would be operating rooms, obstetrical delivery rooms (case rooms), anaesthetic facilities, radiotherapy, physiotherapy or occupational therapy facilities, etc. for the treatment of individuals, as reflected by the linking of this definition with the definition "institutional health care service" in section [1] of Part II of Schedule V.

Whether a particular facility is a "health care facility" as described in paragraph (a) of the definition is based on the purpose for which the facility is operated as opposed to the activities undertaken in the facility. The paragraph only applies to facilities operated for the purpose of providing acute, chronic or rehabilitative care that is also medical or hospital care. Thus, the activities undertaken in a facility would not transform that facility into a "health care facility" under the ETA. This interpretation is supported by the provisions in the ETA that exempt services provided outside health care facilities that are similar to those services generally provided within health care facilities (an example is section 10 of Part II of Schedule V to the ETA, which is discussed below).

In our opinion, assessment centres operated for the purpose of supplying medical reports to respond to questions posed by insurance companies, tribunals, lawyers, Workers' Compensation Boards, employers, etc. (which you referred to as "third parties" in your letter) are not facilities included in the "health care facility" definition. The presence of the medical practitioners would not bring an assessment centre within the scope of the health care facility definition if the assessment centre were not operated to provide the type of care described in the definition. Although the medical practitioners under contract to the assessment centres apply their professional expertise to the preparation of the reports, including the examination and assessment, and are acting in their professional capacity and have professional obligations, such examinations and assessments fall outside the ambit of care or treatment because they are performed solely for the purpose of producing a medical report for another person, such as an insurance company. Therefore, the assessment centre cannot be said to be operated for the purpose of providing acute, chronic, or rehabilitative care.

2. Definition of "institutional health care service."

Section 2 of Part II of Schedule V to the ETA exempts the supply of an "institutional health care service" made by the operator of a health care facility and rendered to a patient of the facility. The term "institutional health care service" is defined in section 1 of that Part. If the facility in question is not a health care facility, then none of the activities undertaken in that facility fall within the scope of the "institutional health care service" definition.

In our opinion, the private clinics described in your letter are not health care facilities and therefore none of the activities undertaken in those clinics are institutional health care services for purposes of the ETA. Thus, section 2 of Part II of Schedule V to the ETA does not apply to the supplies made by the operators of the private clinics, including the supplies of medical reports, notwithstanding that the reports may have been prepared following an examination or assessment of an individual by a medical practitioner or other practitioner.

In addition, the scenario you described would indicate that the assessments, which you referred to as "designated assessments" and "FAE assessments" in your letter, are not supplies in and of themselves; rather these assessments are likely inputs acquired by the incorporated entity for purposes of supplying a medical report to another person, such as an insurance company. Alternatively, the assessment may simply be one of the activities undertaken by the incorporated entity itself (i.e., through an employee as opposed to acquiring the services of an independent contractor) to make the supply of the medical report.

We note that this definition specifically encompasses those particular services provided by health care facility operators that support the health care and treatment supplied by health care professionals, such as drugs, use of operating rooms, obstetrical delivery rooms, medical equipment, laboratory tests, radiotherapy, physiotherapy and occupational therapy facilities, services of laboratory technicians and orderlies, etc., and the ETA provides an exemption for these support services supplied by the operator. Other exemptions may apply to other supplies made within the health care facility by other suppliers.

Although it is our view that the private clinics in question are not health care facilities and are therefore not supplying institutional health care services, we would like to set out our position on the interpretation of this definition where a health care facility does exist. Based on the information you provided, our interpretation focuses on the following elements of this definition: paragraph (a) - laboratory, radiological or other diagnostic services; paragraph (e) - physiotherapy or occupational therapy facilities; and paragraph (h) - services rendered by persons who receive remuneration from the operator of the health care facility.

Paragraph (a) - diagnostic service

This paragraph refers to laboratory, radiological or other diagnostic tests, for example, EKGs, blood tests, x-rays, mammography, fluoroscopy, and sonography. A diagnostic service in this context relates to the testing of bodily fluids or radiological services and encompasses such activities as serological tests, microscopic analysis, and the reporting of findings. Physical examinations or assessments rendered by practitioners do not fall within the scope of this paragraph as such examinations and assessments are not of the same kind as the diagnostic services described.

Paragraph (e) - physiotherapy or occupational therapy facilities

We interpret the use of physiotherapy and occupational therapy facilities as the premises where physiotherapy or occupational therapy services are provided to patients within the health care facility. If the facility does not have physiotherapy or occupational therapy facilities on its premises, this element of the definition does not apply.

Paragraph (h) - persons remunerated by the facility operator

The definition "institutional health care service" is a package of services that are conjugated together to describe an institutional health care service. This element is directly linked to the preceding elements of the definition and in keeping with the context of the other elements, this element also includes supporting services for the care provided by health care professionals. For example, this element would include the services rendered by an orderly or a technician in a hospital trained to carry out certain attendant or technical duties.

We do note, however, that it is a question of fact as to whether a service rendered by a health care professional, such as a medical practitioner, is a separate supply and therefore outside the scope of this definition, or an element of a single supply of an institutional health care service.

3. "Diagnostic service" for purposes of section 10 of Part II of Schedule V to the ETA.

Section 10 of Part II of Schedule V to the ETA exempts a supply of a prescribed diagnostic service when made on the order of a medical practitioner or practitioner. A prescribed diagnostic service is described in the Health Care Services (GST/HST) Regulations. For purposes of the exemption, a diagnostic service is a laboratory, radiological or other diagnostic service of the kind generally available in a health care facility. In addition, the exemption covers the administration of drugs, biologicals or related preparations provided in conjunction with these diagnostic services. Thus, a diagnostic service for purposes of section 10 is of the same kind as that included in paragraph (a) of the definition of "institutional health care service". Accordingly, section 10 covers laboratory, radiological or other similar diagnostic services, such as serological tests, microscopic analysis, EKGs, x-rays, mammography, fluoroscopy, and sonography.

We understand that the tests and evaluations in question are performed at the incorporated entity's clinic and are used in the preparation of a medical report concerning an individual who is the subject of that report. We also understand that the medical practitioner who orders the tests and evaluations may be the director of the clinic or an independent physician under contract to the clinic. You did not describe the nature of the tests and evaluations performed at the private clinics in question. Whether these tests and evaluations are exempt supplies for purposes of section 10 of Part II of Schedule V to the ETA depends on whether they are laboratory, radiological or other such diagnostic services that are described in the Health Care Services (GST/HST) Regulations.

In addition, based on the information in your letter, we understand that your question relates to tests and evaluations performed to respond to specific questions posed by another person, such as an insurance company, and the information obtained from these tests and evaluations will be included in a report that is supplied to that other person. The supply of the report may involve numerous integrated components of services and property, the results of which will constitute one all-inclusive, value-added supply of a report. The invoice to the recipient includes amounts to recover the costs of the various inputs of services and property required to supply the report. The inputs lose their individuality and their costs simply become part of the consideration for the supply of the report. Whether any test or evaluation is an input to a supply, or whether the test or evaluation is in and of itself a supply is a question of fact.

4. Diagnostic and treatment services as inputs to the supply of a medical report.

You asked the question that if we consider the report to be the supply, and the diagnostic and treatment services as inputs to that supply, will any diagnostic or treatment service then be taxable if the service or treatment is not covered by a provincial health insurance plan (i.e., where section 9 of Part II of Schedule V to the ETA does not apply). It will be a question of fact as to whether any diagnostic or treatment service qualifies for exemption under the ETA. However, as noted above, when the consideration includes amounts to recover the costs incurred to make the supply, those costs are not in and of themselves separate supplies. Rather, they are simply part of the total consideration for a supply. As the supply of the medical report is taxable, the GST/HST applies to the total consideration for that taxable supply.

5. Other issues.

Note that under the scheme of the ETA, only licensed individuals are authorized to provide the health care services described in the ETA, e.g., medical care, physiotherapy, occupational therapy, etc. Accordingly, the tax status of a supply of a health care service can change depending on the supplier. Thus, with respect to your comments on orthotic care, physiotherapy and occupational therapy, please note the exemptions in Part II of Schedule V to the ETA; namely paragraphs 7(d) and (e) that apply to chiropodic and podiatric services, paragraph 7(c) that applies to physiotherapy services, and paragraph 7(i) that applies to occupational therapy services. These services are exempt when the supplier of service is a licensed practitioner of the service and the service is rendered to an individual.

Our position concerning the preventative, teaching, and instructional services you noted in your letter, e.g., lectures to individuals and groups, job demands analyses, is that when an employer contracts for these types of services (which you referred to as occupational therapy services), such services do not fall within the scope of the exemption in paragraph 7(i) of Part II of Schedule V to the ETA because they are not services rendered to an individual. Preventative, teaching or instructional services provided to employees by occupational therapists are not exempt supplies for purposes of the ETA.

With respect to supplies of medical devices, the ETA describes in Part II of Schedule VI certain supplies of medical devices that are zero-rated. For instance, the supply of an orthotic device is zero-rated under section 23 of Part II of Schedule VI to the ETA when it is custom-made for an individual or when the device is supplied on the written order of a medical practitioner for an individual named in the order.

Finally, we would like to point out that the contracts between the incorporated entity and the independent contractors you described in your letter, such as the medical practitioner to act as a director and coordinator of the private clinic, the specialist medical practitioners and all other practitioners, would not fall within the scope of any of the exemptions in Part II of Schedule V to the ETA. The incorporated entity acquires the services of the independent contractors to make its own supplies to insurance companies, employers, individuals, etc. Accordingly, the GST/HST would apply to the consideration payable by the incorporated entity to these independent contractors.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the ETA, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-6761.

Yours truly,

Susan Eastman
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division